Update: Roth IRA’ing for 2012

When I originally wrote about my Roth IRA ideas back in January, I estimated my MAGI to be between $77,000 and $121,000. I’m now pretty confident that it is around the higher number, which puts me smack in the middle of the income phaseout range. 2012 could very likely be my last year that I can put money into a Roth IRA through the front door and I should take advantage of that, as I am estimating my 2013 MAGI to be between $139,000 and and $167,000 if I stay with my current employer.

A reader asked me recently why I haven’t checked off the “Max out my Roth IRA – $5,000” goal yet.

At this point, I’ve decided that I’m waiting until I get my last bonus for the year and know my exact MAGI so that I know exactly how much I can put into the Roth IRA via the front door. I’ll probably wait until late January when I get my W-2, just to be safe. My current math suggests I’ll be able to put about $1,000-1,200 into my Roth IRA this year, all of which I’ll probably put into Vanguard’s Extended Market Index fund. That amount should be easy to find in January.

I would say that I am on track for the rest of the goals and the money that can’t go in the front door to the Roth IRA will end up on the mortgage, so it’s all good overall.

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9 thoughts on “Update: Roth IRA’ing for 2012

  1. Sucks when you make too much money to max the Roth eh? ;-) I had that problem last year, but was still able to contribute a little over 3k. This year I’m thinking of going with the traditional IRA max to help offset some of the tax liability I’m going to have for working overseas for a partial year.

    • Oh, you don’t have a 401(k) so you can contribute to a Traditional IRA ;)

      I’m debating whether it’s worth putting money in the backdoor or not. I still have a few more months to decide on that. If not, I guess I’ll put my last $1,200 or so in the front door of the Roth IRA and possibly leave it alone for years to come…

  2. My recommendation would be to contribute as much as I can directly and put the rest in a non-deductible IRA even if I wasn’t going to convert it to a Roth right away. It’s clear that you don’t need the money currently and you can’t contribute the money later if you do decided to convert in the future. The downside of the non-deductible IRA is that any gains you have a paid out as regular income and not long term capital gains, which may result in a higher tax bill. Some people use non-deductible IRAs for tax-inefficient investments (REITs and taxable bonds) where you would otherwise have to pay taxes on the annual dividends).

    Personally, I’d wait until Jan, make both my 2012 and 2013 contributions and then convert both over and be done with contributing until Jan 2015 when I would make my 2014 and 2015 contributions. But as a lowly, environmental engineer, I don’t yet have that problem.

    The whole ability to convert regardless of income levels renders the income phaseout for direct contributions completely pointless, which is what I generally expect from congress at this point.

    • I’m not sure that I would ever consider keeping money in a non-deductible traditional IRA, so I would definitely convert. I really like your idea to make both the 2012 and 2013 contributions at the same time – thanks!!

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